18 months of New Zealand’s national interest assessment – what have we learnt?

In the midst of the international shake-up and tightening of foreign investment regimes, New Zealand added an additional tool to its arsenal in the form of the “national interest assessment”.

Modelled on a test applied by the Australian Foreign Investment Review Board, the national interest assessment empowers the Minister of Finance to review a broad category of investments to determine whether they are contrary to New Zealand’s national interest. The Minister has full discretion to decide whether to approve a transaction, impose any number of conditions or, in rare cases, prohibit a transaction from proceeding altogether.

When the new assessment was first introduced, many commentators expressed concern that the burden it introduced was “out of kilter” with its desired aims and would instead serve to stifle foreign investment. So, 18 months on, what impact has it had on the length and complexity of reviews, and ultimately on foreign investment in New Zealand? The answer is somewhat mixed.

It is fair to say that the national interest assessment can add considerable time to the overall review process. The final decision on all national interest reviews must be taken by Grant Robertson, the current Minister of Finance. He is, understandably, a very busy man, due to dealing with the fallout of the covid-induced economic crisis, among his other vast number of roles. We are aware of a transaction that sat with the Minister (under the parallel national security and public order regime) for more than the maximum 85 working days limit without a decision. However, a number of other decisions have proceeded without any perceptible delays.

A further difficulty with the process is its relative lack of transparency. While decision summaries are published online, relevant summaries published to date have offered very little in the way of detail as to why the test was (or was not) met and what conditions (if any) were imposed and why. Whilst this is not a particularly promising start, it is still early days for the new test. Only a limited number of cases have fallen within the scope of the national interest assessment, and the assessment is highly fact-specific.

The national interest assessment also has a curious interface with competition law. The Treasury’s National Interest Guidance confirms that in applying the national interest test, the Government considers possible effects on competition, including whether a transaction may grant an investor access to significant economic rents, or the ability to effectively influence other businesses or the Government. Interestingly, the Guidance confirms that this competition assessment is entirely separate from any prospective investigation of a transaction by the New Zealand Commerce Commission. We are aware of a transaction (and expect more will arise) that was not considered to pose any competition risks by the Commerce Commission (with no vertical or horizontal overlap arising), yet this case was held up for review by the Government on the grounds of its possible effects on competition. One would expect the Commission is better placed to assume the role of competition watchdog...

On a more positive note, after some lobbying by practitioners, some early bugs in the legislation have been ironed out. The threshold for an investor to constitute a foreign government investor has been increased from “more than 10%” foreign government associated ownership / control to “more than 25%”. Further, to calculate this percentage, investors must now aggregate only foreign government interests from the same country, instead of foreign government interests from any country, as was the prior rule (which unsurprisingly proved unworkable). An exemption has also been introduced for certain ‘passive’ investors such as pension funds that are less than 25% owned by a foreign government and are not in practice controlled or influenced by that government. These changes have narrowed the scope of the test, and sensibly limited its application.

New Zealand’s national interest assessment works well in many cases. But it may yet require further tweaking, to ensure it lives up to its name and really operates in New Zealand’s national interest.